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President Donald Trump has put a temporary payroll tax holiday in place in his latest bid to help shore up an American economy crippled by the coronavirus pandemic.
While that means some workers will take home bigger checks, others worry that such a change could deplete funding for Social Security, which relies on those taxes.
Now, a letter sent this week by Social Security Chief Actuary Stephen Goss estimates that if a permanent payroll tax cut were put in place, it could deplete the program’s funding by mid-2023. That’s based on the change taking effect for earnings starting on Jan. 1, 2021.
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The Old-Age and Survivors Insurance (OASI) Trust Fund would permanently run out at that time, at which point no benefits would be payable, according to Goss’ estimates. That trust fund is used to pay benefits to retired workers and their spouses and children, as well as survivors of deceased workers.
Meanwhile, the Disability Insurance (DI) trust fund would run out of funding two years earlier, in mid-2021. At that point, it would also have no money to pay benefits, Goss wrote. That trust fund is used to pay disabled workers who qualify for benefits, as well as their spouses and children.
The estimate is based on possible legislation, not any specific proposal. Goss sent the letter to Sens. Charles Schumer, D-N.Y.; Bernie Sanders, I-Vt.; Chris Van Hollen, D-Md.; and Ron Wyden, D-Ore., who had requested the analysis.
Payroll taxes are used to provide funding to Social Security and Medicare. Currently, employees pay 6.2% for Social Security on income up to $137,700 as of 2020. They also pay an additional 1.45% towards Medicare.
Trump signed an executive order on Aug. 8 to give Americans who earn less than $100,000 a temporary break from paying payroll taxes. But those taxes will have to be paid back next year.
“If I’m victorious on Nov. 3, I plan to forgive these taxes and make permanent cuts to the payroll tax,” Trump said at the time.
Trump’s comments were interpreted to mean either that he planned to make it so those funds did not have to be paid back, or that he planned to permanently eliminate the payroll tax.
Social Security advocates have been quick to shut down the prospect of getting rid of the tax altogether.
“If Donald Trump is re-elected, Social Security will cease to exist before the end of his second term,” Nancy Altman, president of Social Security Works, said in a statement in reaction to the Goss letter.
However, White House economic advisor Larry Kudlow dismissed those concerns in a Tuesday interview.
“There is no plan to eliminate Social Security taxes,” Kudlow said. “I don’t know where that idea came from. It’s not true.”